UTV application poses BIG question for Broadcasting Authority… and it’s all about the numbers

Since news broke this morning of the UTV application to the Broadcasting Authority of Ireland (BAI) for a Content Provision Contract I’ve been trying to figure how the figures could work.

Having worked with some of the players in the past* I don’t see that they (the figures) can work. That leads to a lot of ‘what’ / ‘how’ questions and I think the BAI has a really big call on its hands.

Working off figures in the public domain the commercial income for television in Ireland in 2012 was c.€157.5m (€96.96m, €57.6m and €2.88m deduced from the RTE Annual Report (p.92), and media reports re TV3 and TG4 respectively). Consider then that

All the existing channels have reported reduced commercial sales in 2012 and acknowledge 2013 to be another challenging year as it is in other media markets – the commercial pot is not growing.

By deduction from the same reports and assuming a standard annual 8,760 hours output for all the existing channels, the cost per hour of TV output can be assessed as anywhere between €6,000 (estimate for TV3) and €14,800 (published figure for RTE 1).

Even allowing that UTV only originates in Ireland for Ireland for, say, 12 hours a day and that it’s cost of production is at the lower end of the scale noted above (even though it is promising an hour of news and current affairs nightly – the most expensive form of TV output), it will still cost of the order of €25 – 30m to run that station.

UTV’s only source of income will be the commercial market so it has to take 15 – 20% of a reducing market from the off to wash its face.

Given the migration of the ITV content TV3 will be the first to feel that effect and while there will clearly also be a reduced cost to them from not paying the ITV rights fees, its currently thin margins will be severely challenged.

All this to me begs a question. Does the BAI not have a responsibility to ensure that in licensing the commercial sector, be it in TV or radio, it affords a fair and reasonable opportunity to all existing and prospective licence holders that there will be a market basis to achieve a commercial return for the lifetime of the licence they are granted.

Is it not incumbent on the BAI, notwithstanding pre application deals an applicant may have for content, to reject an application where the granting of a licence of itself would explicitly impact negatively on the commercial opportunity of an existing licence holder to the point where a commercial return could no longer be considered a fair and reasonable possibility for any given licence holder?

Presumably there will be an independent economic assessment of the market impact of the application – somewhat similar to what would be undertaken to examine the competition impact of a merger. Frankly there has to be to make any decision a safe one for the BAI and for the sustainability of a commercial opportunity for either the applicant or existing players in the market.

It was all good feel for UTV today but there is a long way to go on this one yet… and either way, it will be all about the numbers

*I have previously been an advisor to TV3 and to its current shareholder